Prior studies have documented that in firm-supplier relations where the firm makes an investment up-front, the profits are exposed to expropriation by the supplier, and results in underinvestment. We analyze such a firm-supplier relation in a bargaining framework, and show that the bargaining power of the firm is positively related to the resale value of its investment, and negatively related t...

We analyze a model of optimal capital structure and liquidity choice based on a dynamic tradeoff theory for financially constrained firms. In addition to the classical tradeoff between the expected tax advantages of debt financing and bankruptcy costs, we introduce a cost of external financing for the firm, which generates a precautionary demand for cash and an optimal retained earnings policy ...

We analyze the impact of changes in thin capitalization rules on corporations' capital structure. Thin capitalization rules prevent rms from deducting excessive interest expenses from their tax base. As of 2008, Germany has severely changed its thin capitalization rule by targeting interest payments instead of debt to equity ratios. The new rule has primarily been introduced to prohibit tax avo...

We find that firms with greater tax avoidance incur higher spreads when obtaining bank loans. This finding is robust in a battery of sensitivity analyses and in two quasiexperimental settings including the implementation of Financial Accounting Standards Board Interpretation No. 48 and the revelation of past tax sheltering activity. Firms with greater tax avoidance also incur more stringent non...

Taiwan, Republic of China (ROC), introduced a new income tax system, combining corporate and personal income taxes, on 1 January 1976. This new tax system, resembling those used in many European countries, has had a significant impact on the debt/equity capital structure of companies domiciled in Taiwan. This study provides historical background concerning taxing policies, an analysis of the ne...

I ncreased expenditures and the government size is an important issue in public sector economics. In this regard, various theories have been developed in order to justify the reasons for the public expenditure growth, and the theories have been empirically tested. One of the outlooks explaining the government expenditures growth and the economy size, is fiscal illusion approach. According ...

Author Contact: David E. Giles, Dept. of Economics, University of Victoria, P.O. Box 1700, STN CSC, Victoria, B.C., Canada V8W 2Y2; e-mail: [email protected]; Phone: (250) 721-8540; FAX: (250) 721-6214 Abstract We model the durations between firms’ “Initial Public Offerings” (IPOs) and their subsequent “Seasoned Equity Offerings” (SEOs) in China during the period from 1 January 2001 to 1 July 2006...

1.1 Overview of the US mortgage market Owner-occupied housing and the mortgages used to finance it are currently the single largest asset and liability on the household balance sheet. As shown in Graph 1, residential mortgage debt has grown so that households now owe just over $8 trillion. Consumer credit, which includes personal loans, auto loans and credit card balances, now stands at just ov...

U.S. consumers currently hold $880 billion in revolving debt, with a mean household credit card balance of approximately $6,000. Although economic factors play a role in this societal issue, it is clear that psychological forces also affect consumers' decisions to take on and maintain unmanageable debt balances. We examine three psychological barriers to the responsible use of credit and debt. ...